Case 1:13-cv-00052-LY Document 32 Filed 07/15/13 Page 1 of 7 IN THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF TEXAS 2013 JUL 15 P11 14: [ AUSTIN DIVISION JERRENE L'AMOREAUX AND CLARKE F. L'AMOREAUX, PLAINTIFF, V. CIVIL NO. A-13-CV-052-LY WELLS FARGO BANK, N.A., MERSCORP HOLDINGS, INC., AND BARRETT DAFFIN FRAPPIER TURNER & ENGEL, LLP, DEFENDANTS. ORDER ON REPORT AND RECOMMENDATION Before the court are Defendant Barrett Daffin Frappier Turner & Engel, LLP's Motion to Dismiss Pursuant to Rule 12(b)(6), filed January 23, 2013 (Clerk's Doe. No. 5), Defendants Wells Fargo Bank, N.A., and Merscorp Holdings, Inc.'s Motion to Dismiss Pursuant to Rule 12(b)(6) and Brief in Support, filed January 28, 2013 (Clerk's Doe. No. 7), and Plaintiffs' Motion for Sanctions Against Defendant Barrett Daffin Pursuant to Federal Rule of Civil Procedure 11(c), filed March 5, 2013 (Clerk's Doe. No. 15). The motions were referred to the United States Magistrate Judge for findings and recommendations pursuant to 28 U.S.C. 636(b), Federal Rule of Civil Procedure 72, and Rule 1(d) of Appendix C of the Local Rules of the United States District Court for the Western District of Texas, as amended. The Magistrate Judge filed his Report and Recommendation on May 7, 2013 (Clerk's Doe. No. 24), recommending that the court deny Plaintiffs' motion for sanctions and grant Defendants' motions to dismiss. Pursuant to 28 U.S.C. 636(b) and Rule 72(b) of the Federal Rules of Civil Procedure, a party may serve and file specific, written objections to the proposed findings and recommendations of the Magistrate Judge within 14 days after being served with a copy of the Report and
Case 1:13-cv-00052-LY Document 32 Filed 07/15/13 Page 2 of 7 Recommendation, and thereby secure a de novo review by the District Court. A party's failure to timely file written objections to the proposed findings, conclusions, and recommendation in a Report and Recommendation bars that party, except upon grounds of plain error, from attacking on appeal the unobjected-to proposed factual findings and legal conclusions accepted by the District Court. See Douglass v. United ServicesAutoAss'n, 79 F.3d 1415 (5th Cir. 1996) (en bane). The record reflects that any objections to the Report and Recommendation were due on or before May 22, 2013. Plaintiffs timely filed objections on May22 (Clerk's Doc. No. 28), to which Defendants filed a response (Clerk's Doe. Nos. 30, 31). In light of Plaintiffs' objections, the court has undertaken a de novo review of the entire case file in this cause. This case challenges the authority of Defendants to conduct a nonjudicial foreclosure sale of Plaintiffs' property. Plaintiffs assert the following claims: (1) violation of section 12.002 of the Texas Civil Practices and Remedies Code; (2) breach of contract; (3) quiet title; and (4) a plea for injunctive relief The magistratejudge recommends this court dismiss all of these claims for failure to state a claim upon which relief can be granted. See FED. R. Civ. P. 12(b)(6). I. Claims Against Barrett Daffin The magistrate judge first concluded that all of Plaintiffs' claims against Defendant Barrett Daffin Frappier Turner & Engel, LLP (Barrett Daffin) should be dismissed because Barrett Daffin, as a law firm, enjoys immunity from suits by nonclients for acts taken in the course of representing a client, here Defendant Wells Fargo Bank, N.A. (Wells Fargo). See FinServ Cas. Corp. v. Settlement Funding, LLC, 724 F. Supp. 2d 662, 671 (S.D. Tex. 2010). Plaintiffs argue Barrett Daffin cannot claim immunity for acts taken outside of litigation or acts of fraud. 2
Case 1:13-cv-00052-LY Document 32 Filed 07/15/13 Page 3 of 7 This court already considered and rejected Plaintiffs' arguments in accepting and adopting the magistratejudge' s interim report and recommendation and denying Plaintiffs' motion for remand (Clerk's Doc. No. 23).' In that order, the court held that Barrett Daffin, a Texas resident, could not destroy this court's diversity jurisdiction over Plaintiffs' claims, because Plaintiffs had no reasonable basis of recovery against Barrett Daffin due to its immunity from suit. See Smaliwood v. Ill. Ceni. R.R. Co., 385 F.3d 568, 573 (5th Cir. 2004) (improper joinder of nondiverse defendant cannot destroy diversity jurisdiction where plaintiff unable to establish cause of action against that party in state court). The court rejected Plaintiffs' attempt to limit attorney immunity to conduct taken during judicial proceedings and found that Plaintiffs failed to plead Barrett Daffin knowingly engaged in fraud. See Rawhide Mesa-Partners,, Ltd. v. Brown McCarroll, LLP, 344 S.W.3d 56, 62 (Tex. App.Eastland 2011, no pet.) (attorney immunity from suit by nonclients extends to context of representation in business transaction); see also Essex Crane Rental Corp. v. Carter, 371 S.W.3d 366, 381-82 (Tex. App.Houston [1st Dist.I 2012, pet. denied) (attorneys may be liable for knowingly committing fraud on client's behalf). Plaintiffs' objections and motion for reconsideration fail to raise any new argument in support of their claims that persuade the court its previous conclusions with respect to Barrett Daffin's immunity were in error. The court will overrule Plaintiffs' objections as to their claims against Barrett Daffin and deny Plaintiffs' motion for reconsideration of the court's order denying remand. 10n May 19, 2013, Plaintiffs filed a Motion for Reconsideration of Plaintiffs' Objection to Magistrate's Report and Recommendation Denying Remand, which asks the court to vacate its order denying remand and return this case to state court (Clerk's Doc. No. 26). Barrett Daffin filed a response to the motion on May 22, 2013 (Clerk's Doc. No. 29). This motion is also ripe for the court's review and will be disposed of herein. 3
Case 1:13-cv-00052-LY Document 32 Filed 07/15/13 Page 4 of 7 II. Claims Against Wells Fargo and Merscorp Holdings, Inc. The magistrate judge also concluded that Plaintiffs' claims against Wells Fargo and Merscorp, Inc., fail as a matter of law. As to Plaintiffs' claims under section 12.002 of the Texas Civil Practices and Remedies Code, the magistrate judge concluded that section 12.002, which prohibits the making, presentment, or use of a fraudulent lien or claim against real property, does not encompass the assignment that is the basis of Plaintiffs' claims. Plaintiffs' objections argue section 12.002 is much broader, directing the court to several lower-court opinions that have allowed claims based on fraudulent assignments to proceed under section 12.002. See, e.g., Shelton v. Flagstar Bank, F.S.B.,No. CA H-i 1-3805,2012 WL 1231756 (S.D. Tex. Apr. 12,2012). Plaintiffs made this same argument in their response to Defendants' motion to dismiss. In his report and recommendation, the magistrate judge correctly stated that Texas court have not yet addressed the issue of whether an assignment of a deed of trust constitutes a lien or claim against real property for purposes of section 12.002 and that federal district courts in Texas are divided on the issue. This court agrees with the magistrate judge's analysis, which follows the majority of federal district courts. See, e.g., Marsh v. JP Morgan Chase Bank, NA., 888 F. Supp. 2d 805, 813 (W.D. Tex. 2012) (assignment of deed of trust does not create lien or claim so as to give rise to claim under section 12.002). The court will overrule Plaintiffs' objections as to this claim. The court also finds Plaintiffs' objections as to their breach-of-contract and quiet-title claims to be without merit. It is undisputed that Plaintiffs defaulted under the loan agreement at issue by failing to make payments on their mortgage. It is well settled Texas law that Plaintiffs' own breach of contract precludes them from maintaining a suit for contractual breach. RE/MAX of Tex., Inc. v. Katar Corp., 989 S.W.2d 363, 365 n.4 (Tex. 1999). And Plaintiffs cannot maintain an action for
Case 1:13-cv-00052-LY Document 32 Filed 07/15/13 Page 5 of 7 quiet title by merely alleging the perceived weakness of Defendants' title. See Hahn v. Love, 321 S.W.3d 517,532 (Tex. App.Houston [1st Dist.] 2009, pet denied) (plaintiff must establish his own superior title to be entitled to relief). The court will overrule Plaintiffs' objections as to these claims. Moreover, all of Plaintiffs' claims are based on the faulty premise that Wells Fargo must be the holder of the note to possess the authority to enforce the deed of trust through nonjudicial foreclosure or to assign that interest for enforcement thereof Plaintiffs' objections essentially maintain that the transfer of a deed of trust, without more, is insufficient under Texas law to transfer the underlying debt and the right to collect that debt. This split-the-note theory has been repeatedly rejected by federal district courts interpreting Texas property law and has now been directly addressed in a published opinion by the Fifth Circuit Court of Appeals. See Martins v. BAC Home Loans Servicing, L.P., F.3d, 2013 WL 3213633 (5th Cir. June 26, 2013). In Martins, the Fifth Circuit held that Texas law does not require the foreclosing party to be the holder of the original note, where that party is a mortgage servicer, the deed of trust has been properly assigned, and the deed of trust grants the power to foreclose. Id. (applying this principle to uphold MERS's authority to assign right to foreclose to defendant bank, thereby granting bank authority as mortgagee and mortgage servicer to itself foreclose). Here, the deed of trust executed by Plaintiffs identifies MERS as the beneficiary and nominee for the original lender and grants MERS the right to foreclose and sell the property, as well as the right to assign these interests to others. Further, by statute, as the beneficiary and holder of the deed of trust, MERS qualified as a mortgagee. TEX. PROP. CODE 51.0001 (4)(A). Hays County property records establish that MERS assigned its interest to Wells Fargo on July 15, 2011. Upon assignment, Wells Fargo became the mortgagee with authority to foreclose. Id. at 51.0001 (4)(C) (last person 5
Case 1:13-cv-00052-LY Document 32 Filed 07/15/13 Page 6 of 7 to whom security has been assigned of record is mortgagee). A mortgagee may be its own mortgage servicer. Martins, 2013 WL 3213633 (citing TEX. PROP. CODE 5 1.0001(3)). Accordingly, the deed of trust of record grants the beneficiary of the security instrument the power of nonjudicial foreclosure, a right MERS transferred to Wells Fargo upon assignment. See Martins, 2013 WL 3213633. As the new mortgagee, Wells Fargo had the right to act as its own mortgage servicer and administer nonjudicial foreclosure proceedings. Plaintiffs' assertion that MERS and Wells Fargo needed to possess the note in order to foreclose fails as a matter of law. See id. The court will overrule Plaintiffs' objections. IT IS THEREFORE ORDERED that Plaintiffs' Objection to Magistrate's Report and Recommendation to Grant Dismissal (Clerk's Doc. No. 28) is OVERRULED. IT IS FURTHER ORDERED that the Report and Recommendation of the United States Magistrate Judge filed in this cause (Clerk's Doe. No. 24) is hereby ACCEPTED AND ADOPTED by the court. IT IS FURTHER ORDERED that Defendant Barrett Daffin Frappier Turner & Engel. LLP's Motion to Dismiss Pursuant to Rule 12(b)(6) (Clerk's Doe. No. 5) is GRANTED. IT IS FURTHER ORDERED that Defendants Wells Fargo Bank, NA., and Merscorp Holdings, Inc.'s Motion to Dismiss Pursuant to Rule 1 2(b)(6) and Brief in Support (Clerk's Doe. No. 7) is GRANTED. IT IS FURTHER ORDERED that Plaintiffs' Motion for Sanctions Against Defendant Barrett Daffin Pursuant to Federal Rule of Civil Procedure 11(c) (Clerk's Doe. No. 15) is DENIED.
Case 1:13-cv-00052-LY Document 32 Filed 07/15/13 Page 7 of 7 IT IS FURTHER ORDERED that Plaintiffs' Motion for Reconsideration of Plaintiffs' Objection to Magistrate's Report and Recommendation Denying Remand, filed May 19, 2013 (Clerk's Doc. No. 26) is DENIED. IT IS FINALLY ORDERED that Plaintiffs' complaint is DISMISSED WITH PREJUDICE. SIGNED this day of July, 2013. LE EAEL TED STAT DIST ICT JUDGE 7